Comparing the average Joe's retirement to members of Congress

Members of Congress are ready to retire comfortably, but the average American is struggling. (Kevin Burkett, Kevin Burkett via flickr)

Many people think they'll never be able to retire.

Chris Kahn, research and statistics editor for bankrate.com, knows this because every time the personal finance website posts an article about retirement, people will leave comments on the story like, "What retirement?" or "I can't do it," or "What is this dream you keep writing about?"

So Kahn analyzed and contrasted the retirement benefits of the average middle-class American with members of Congress. He says this comparison is for fun, but in the process may help people see where they stand when it comes to retirement.

And many are not standing on firm ground. The Employee Benefit Research Institute's 2013 Retirement Confidence Survey found that only 66 percent of workers have anything saved for retirement — down from 75 percent in 2009. More than half of workers report that they have less than $25,000 in total savings (excluding their homes and defined benefits plans).

"For the most part, the difference between average Americans and Congress is that members of Congress are federal employees," Kahn says. "The federal government has always been a great source of benefits."

Average retirement

Average Americans earning a middle-class salary for most of their lives will retire at 65 with initial Social Security benefits of $18,234 a year. Members of Congress, however, will get, on average, an initial Social Security benefit of $30,156 a year.

Kahn says this comparison is a bit of an apples versus oranges scenario: "You are comparing benefits based in one case on the average salary of workers all across the U.S. versus a very small group of people who make $174,000 a year minimum. On top of that, congressmen are getting other great federal benefits as well."

According to the Bankrate.com report, fewer than one in five private sector workers qualify for a pension. In the 1980s, more than four in five would have had pensions. Members of Congress have federal pension programs that pay, on average, $40,000 a year and up.

The only drawback for new representatives in the House is they will need to be re-elected in order to be a federal employee long enough to be vested into these pension plans.

"When you look at the private sector, it is amazing how much benefits have changed and how much they have declined over the last couple of decades," Kahn says.

Health insurance differences

It isn't just a decline in pensions. Health insurance in retirement is also on the retreat. In 1988, 66 percent of large firms had retiree health benefits. Now, according to the Kaiser Family Foundation, only 25 percent of large firms and 4 percent of small firms offer health benefits as part of their retirement plans.

"Most private firms offered these insurance plans that were like a Medicare supplement," Kahn says.

Members of Congress like other federal employees get health coverage through the Federal Employees Health Benefits Program. Seventy-two to 75 percent of the premium costs are paid by the government.

Easy investing

Another difference that Kahn says surprised him deals with how easy it is for members of Congress to make investments.

Most ordinary workers have a 401(k) in which they invest. With that investment they have management fees, they have administration fees, they have taxes — all of which can add up to 5 percent of what you are investing. If someone invests $1,000, it would be $50 in taxes and charges.

The federal government has something called the "Thrift Savings Plan," which is for members of Congress, federal employees and military personnel. TSP is similar to a 401(k), but according to Kahn, is run much more efficiently with much lower fees. He says those fees are .027 percent versus the 5 percent. So that would be 27 cents in fees for every $1,000 invested.

"That is minuscule," Kahn says.

The bottom line is that it is cheaper for a congressman or congresswoman to invest and prepare for retirement than it is for average people.

On your own

"It is increasingly a scenario that if you want to retire comfortably, you can't expect social services, your company or whatever the government is offering to provide you enough to retire," Kahn says. "You really need to rely on yourself. You need to plan. You need to budget. You need to think for yourself. You need to find an expert who can help you through the more technical bits of retirement. There is a lot people can do to bolster their nest egg. There are a lot of things out there — but you have to look for it."

Unfortunately, it doesn't look like this is happening for many Americans.

"The conversation we are hearing mostly about retirement," Kahn says, "is the incredible lack of savings among those people who are retiring right now."

In 2010, the Employee Benefit Research Institute estimated that the gap between what Americans have saved for retirement and what they actually would need for retirement was $4.6 trillion. Last year, that savings shortfall grew to $4.8 trillion. On average, workers would need to save $48,000 more to make sure they have enough cash to retire.

"The bottom line is that the gap in savings between what they need and what they have is growing," Kahn says.

How to close the gap

A solution, if people started saving better, would be to work longer. Boston College's Center for Retirement Research found that half of households are ready to retire, but that about 86 percent would be ready if the worker would stay on the job an extra 5 years — retiring at 70 instead of 65. This is because of increased benefits at that age, delayed retirement credits to Social Security and the time to save more money.

Kahn says the keys to retirement are to work longer, save your money, diversify your assets and talk to an expert.

"Just know that you are one among many if you have trouble planning for retirement," he says. "Everybody is having that problem. But there are all sorts of things people can do. The power is really in their hands. The people who will retire well are those who spend a lot of time thinking about it and aren't just waiting for some kind of program to kick in."